Supreme Court of Michigan; Docket #160242; Published
Judges McCormack, Zahra, Viviano, Bernstein, Clement, Cavanagh, and Welch
Official Michigan Reporter Citation: Forthcoming; Link to Opinion; Link to COA Opinion
Legislative Purpose and Intent
In this 7-0 decision (Viviano concurring), the Michigan Supreme Court upheld an indemnification provision in a contract between Defendant City of Detroit (“City of Detroit” or “the City”) and Defendant GFL Environmental USA Inc. (“GFL”). At issue in this case was an indemnification agreement between the City of Detroit and GFL, whereby GFL agreed to indemnify the City against any liabilities it incurred as a result of GFL or its employees’ negligence. After a GFL garbage truck driver struck a City of Detroit bus and forced the City to have to pay PIP benefits to its passenger who was injured as a result of the collision, the City sought reimbursement of the PIP benefits paid to its injured passenger from GFL pursuant to the indemnification agreement. The Supreme Court held that the indemnification agreement was valid after examining the various appellate cases which address the enforceability of provisions in no-fault insurance contracts pertaining to matters not specifically covered in the no-fault act. Based on the reasoning of those cases, the Supreme Court held that the subject indemnification provision was enforceable because it did not conflict with any of the no-fault act’s statutory sections or with the legislative purpose of the no-fault act, which the Court characterized as “to ensure that there is applicable insurance for accidents and that benefits get paid.” Justice Viviano agreed with the result reached by the majority but argued that the indemnification agreement at issue was enforceable because it did not conflict with any of the statutory sections of the no-fault act and that the majority should not have focused on the legislative goals and purpose of the no-fault act.
This case arose out of Keith Bronner sustaining injury while traveling as a passenger on a bus owned and self-insured by the City of Detroit after the bus was involved in a collision caused by a GFL garbage truck. Notably, the City of Detroit contracted with GFL to have the latter perform garbage collection services for it. After the collision, Bronner sought PIP benefits from the City of Detroit, which self-insures its buses pursuant to MCL 500.3101(5). The City initially paid Bronner approximately $58,000 in benefits, but after “the relationship [between Bronner and the City] broke down,” Bronner filed a first-party lawsuit against the City. This prompted the City to file a third-party complaint against GFL, arguing that GFL was liable to reimburse the City for any amounts paid in PIP benefits to Bronner pursuant to an indemnification agreement in the contract between the two, which provided, in pertinent part:
“[GFL agrees] to indemnify, defend, and hold the City harmless against and from any and all liabilities, obligations, damages, penalties, claims, costs, charges, losses and expenses . . . that may be imposed upon, incurred by, or asserted against the City . . . to the extent caused by . . . [a]ny negligent or tortious act, error, or omission attributable in whole or in part to [GFL] or any of its Associates[.]”
GFL moved for summary disposition, arguing that the City of Detroit was attempting to circumvent its obligations under the no-fault act and improperly shift its burden to pay Bronner’s PIP benefits to GFL, and that invoking the indemnification agreement in such a way violates public policy and the legislative intent behind the no-fault act. The trial court disagreed, granting summary disposition in favor of the City of Detroit instead.
On appeal, the Court of Appeals reversed the trial court and held that the indemnification agreement circumvented the Insurance Code’s no-fault rules and was therefore void. In so holding, the Court of Appeals “emphasized the comprehensive nature of the no-fault system, which includes only a few explicit mechanisms by which a no-fault insurer may recover the cost of benefits paid out” and applied the negative-implication canon, expressio unius est exclusio alterius, in holding that, because the no-fault act explicitly sets forth certain mechanisms by which insurers can obtain reimbursement for benefits paid to injured persons, it implicitly excludes any other reimbursement mechanisms, e.g. indemnification agreements such as the one at issue between the City of Detroit and GFL.
Ultimately, the Supreme Court reversed the Court of Appeals. In doing so, the Supreme Court explained how that the Court of Appeals erroneously applied the line of cases addressing when contractual provisions in no-fault insurance policies are rendered unenforceable based on the comprehensive nature of the no-fault law. This line of cases includes Citizens Ins Co of America v Federated Mut Ins Co, 448 Mich 225 (1995), State Farm Mut Auto Ins Co v Enterprise Leasing Co, 452 Mich 25 (1996), Universal Underwriters Ins Co v Kneeland, 464 Mich 491 (2001), and Cruz v State Farm Mut Auto Ins Co, 466 Mich 588 (2002).
The Supreme Court focused on its holding in Cruz to explain why the Court of Appeals’ erred in applying Citizens, State Farm, and Kneeland to conclude that the indemnification agreement at issue was not enforceable. The Supreme Court observed that in Cruz, the Court held that no-fault insurers can include provisions in their no-fault insurance contracts that require insureds to undergo Examinations Under Oath (EUO) so long as the EUO is “ ‘used to facilitate the goals of the [no-fault] act . . . to ensure that the insurer is provided with information relating to proof of the fact and of the amount of the loss sustained.’ ” The Cruz Court further held, however, that the particular EUO provision at issue was not enforceable because it allowed the insurer to “contract out of the statutory duty imposed on the insurer to pay benefits within thirty days of receipt of the fact and of the amount of the loss sustained by agreeing that no benefits are due until an EUO is given by the insured.” In this case, the Supreme Court recognized that the indemnification agreement at between the City of Detroit and GFL did not implicate the same concerns as the provision at issue in Cruz. Specifically, the Court held that the indemnification agreement between the City of Detroit and GFL did not conflict with any specific sections of the no-fault act or with the no-fault act’s intended purpose “to ensure that there is applicable insurance for accidents and that benefits get paid.” Accordingly, the Court concluded that the Court of Appeals erred in holding that the indemnification agreement at issue was unenforceable based on the decisions in Citizens, State Farm, and Kneeland:
“Cruz’s analysis offers critical insight into the nature of what the no-fault law comprehensively regulates. It described the no-fault system as ‘a comprehensive legislative enactment designed to regulate the insurance of motor vehicles in this state and the payment of benefits resulting from accidents involving those motor vehicles.’ Id. at 595 (emphasis added). When Citizens Ins Co, State Farm, Kneeland, and Cruz are read together, it becomes apparent that the comprehensive nature of the Insurance Code’s regulation of no-fault insurance functions to ensure that there is applicable insurance for accidents and that benefits get paid. Citizens and State Farm both struck down agreements that purported to rearrange which insurer had to pay benefits, while Cruz struck down a policy provision that interfered with the payment of benefits. State Farm also noted that agreements that purport to rearrange which insurer is supposed to pay benefits also run the risk of leaving no insurer available to pay benefits. Meanwhile, Kneeland upheld an agreement that did not relate to the payment of mandatory benefits.
The indemnification agreement at issue does not implicate the Cruz concerns. There is no dispute that the bus was ‘insured’ (inasmuch as the city had satisfied the Secretary of State it could self-insure under MCL 500.3101(5)), and there is no dispute that the benefits required by statute to be paid to Bronner and his caregivers were paid. Cruz clearly acknowledges that the Insurance Code’s silence about a particular contractual provision may pose interpretive challenges in the right circumstances; but to implicate Cruz’s concern, the contractual provision must, at minimum, relate to the insurance of motor vehicles or the payment of benefits resulting from motor vehicle accidents. This agreement implicates neither, but rather requires a vendor to reimburse the insurer for the cost of benefits compensating for an injury caused by the vendor’s negligence. Where, as here the agreement does not jeopardize the availability of applicable insurance or the payment of mandatory benefits, it falls outside our anti-shifting rule. As a result, no improper shift of liability as contemplated by Kneeland is implicated in this case,10 because a vendor reimbursing the insurer for the cost of mandatory benefits the vendor caused the insurer to pay out does not relate to either the availability of insurance or the payment of benefits.”
The Supreme Court further held that the Court of Appeals misapplied the negative-implication canon, expressio unius est exclusio alterius. The Court explained that the no-fault act’s reimbursement options are not comprehensive, and parties can contract for other reimbursement methods so long as, again, the indemnification or reimbursement agreement does not compete with the aforementioned, core function of the no-fault act: “to ensure that there is applicable insurance for accidents and that benefits get paid.”
“The Court of Appeals similarly misconstrued the portions of the Insurance Code allowing no-fault insurers to seek reimbursement for payment of some benefits as implicitly excluding any other reimbursement mechanism (such as the indemnification provision at issue). It identified the Michigan Catastrophic Claims Association (the MCCA), MCL 500.3104, the Michigan Assigned Claims Plan (the MACP), MCL 500.3171, and the ability for no-fault insurers to impose a lien on tort damages recovered by some no-fault beneficiaries, MCL 500.3116, as the stated reimbursement opportunities for no-fault insurers under the Insurance Code. In other words, it effectively relied on the negative-implication canon, expressio unius est exclusio alterius, that in stating some options, other options must not exist. However, this ‘doctrine properly applies only when the unius (or technically, unum, the thing specified) can reasonably be thought to be an expression of all that shares in the grant or prohibition involved.’ Scalia & Garner, Reading Law: The Interpretation of Legal Texts (St. Paul: Thomson/West, 2012), p 107. ‘Common sense often suggests when this is or is not so,’ id., and this is such a case: we do not believe these options can be construed as ‘an expression of all that shares in the grant’ of avenues for reimbursement. Rather, each of them responds to specific problems unrelated to the issue presented.
. . .
When we upheld the theoretical viability of EUOs in no-fault policies, we observed that ‘[t]he discovery tools provided in the [no-fault law] are not comprehensive’ and rejected the argument that ‘the provision of some discovery tools by the act—tools that address limited aspects of the insurer’s postclaim information needs—precludes the parties from contracting for the use of other discovery tools including those such as EUOs that enable insurers to directly gather information from the insured.’ Cruz, 466 Mich at 598 n 14. Much the same can be said about the no-fault law’s reimbursement options. They are not comprehensive, and the fact that they are offered does not preclude the parties from contracting for other reimbursement methods. This is all the more apparent when the indemnification agreement at issue does not relate to ‘the insurance of motor vehicles in this state [or] the payment of benefits resulting from accidents involving those motor vehicles.’ Id. at 595. It does not alter the relationship between the insurer and its insured or its beneficiaries, and it does not transform the nature of benefits paid by the insurer to its beneficiaries into something else. It therefore does not conflict with the Insurance Code.”
The Court also addressed issues regarding whether the indemnification agreement at issue conflicted with MCL 500.3116. The Court ultimately concluded that there was no conflict with this statutory section because “the limited opportunity under MCL 500.3116 to recover certain benefits paid out does not imply the inability of an insurer to reach an indemnity agreement with a vendor.”
“Finally, the limited opportunity under MCL 500.3116 to recover certain benefits paid out does not imply the inability of an insurer to reach an indemnity agreement with a vendor. The statute allows “personal injury protection no-fault benefits [to] be reduced to the extent the insured has received equivalent compensation from tort judgments arising from accidents outside of the state, from accidents with uninsured motorists, and from intentionally caused harm.” Tebo v Havlik, 418 Mich 350, 367; 343 NW2d 181 (1984). In such cases, the insurer is reducing its liability to (or recovering from) its beneficiaries. Section 3116 is, in effect, an exception that proves a rule: by providing a limited avenue by which a no-fault insurer can offset its liability to its own beneficiary, it implicitly denies other options at recovering from a beneficiary and confirms the no-fault system’s focus on the relationship between insurers and their insureds and beneficiaries—not the relationship between insurers and their vendors.”
Importantly, however, in footnote 13, the Court further elaborated on its concerns about reimbursement clauses falling outside the permissible scope of MCL 500.3116 when such clauses result in the payment of benefits being the functional equivalent of a loan to the injured person:
“Section 3116 may also address GFL’s concerns that a ruling in the city’s favor here could validate other cost-recovery agreements that might be offensive to the no-fault system. A reimbursement clause that effectively changed an insurer’s relationship with its insureds or beneficiaries—such as an agreement that the insurer would pay out benefits but asserted a right to subsequent reimbursement from the beneficiary—would presumably fall within the comprehensive scope of the statute and not be permitted. Transforming insurance benefits into the functional equivalent of a loan would change the character of the payments being made. By allowing a limited ability to claw back benefits from a beneficiary, § 3116 could certainly be read as implicitly precluding other such arrangements.”
Justice Viviano, concurring, agreed with the result reached by the majority but argued that its “approach relie[d] too heavily on ascertaining the statute’s broad purposes.” In his opinion, the majority should have begun and ended its analysis with a plain reading of the no-fault act. Nowhere in the act does it expressly disallow indemnification agreements such as the one at issue in this case, thus the majority, he argues, did not need to adopt a quasi “field-preemption analysis” in order to determine “whether the no-fault act has impliedly preempted parties from contracting for indemnification.”
“In this case, by investigating the no-fault act’s few scattered provisions concerning reimbursement, the majority thoroughly demonstrates that the act does not occupy this area of law. See ante at 11-14. And through the same analysis of these specific statutory provisions, the majority ably explains why the indemnity agreement at issue does not directly conflict with the operation of any other provision in the no-fault act.1 This analysis, in my view, is generally sufficient to dispose of the case. It shows that the no- fault act does not occupy the field of indemnification and that none of the handful of relevant provisions conflicts with the indemnification contract at issue.
I therefore cannot agree that the majority’s assessments of the sweeping scope and purpose of the no-fault scheme have much, if any, analytical significance. That is, I cannot agree that the enforceability of the indemnification contract at issue turns upon whether a court considers it to be consistent with the broadly characterized statutory goals of regulating the insurance of motor vehicles and requiring payment of benefits. See ante at 10. I do not believe that the proper question in cases like the present one is whether a contract provision ‘implicate[s]’ or ‘relate[s] to’ either of these broadly defined purposes of the no-fault schemes. Ante at 10-11. Rather, the case calls for a closer examination of the statutory text, such as the majority itself provides in addition to its assessments of the statute’s broader objectives.”